In This Week’s Issue…

by Alexander Kalis | Managing Partner & Head of Investments at Milltrust International

Trade Tensions

President Donald Trump’s threat to impose 10 percent tariffs on $200 billion of Chinese imports could curtail growth in the Asian nation by as much ashalf a percentage point, if implemented, according to analysts. China’s regional neighbors may be even more exposed to a trade spat.

India became the latest country to hit back at U.S. tariffs when it announced new import duties on a slew of items from agricultural produce to chemicals and steel products. China said that it is “fully prepared” to respond to fresh U.S. trade measures, with a spokesman saying Beijing is prepared to use a combination of quantitative and qualitative measures. The tariffs are paying off for Washington in the short term at least, as the administration has collected more than $775 millionin duties so far.

MSCI Emerging Markets Upgrades

There was some good news for Argentina and Saudi Arabiawhen both countries were added to MSCI Inc.’s group of emerging markets. Analysts say that the upgrade could spur a relief rallyfor the embattled asset class. Investors in Turkey need some good news ahead of the election on Sunday, with bond, currency and stock markets all under pressure.

LATAM Market Views

In Brazil, we have revised down our GDP growth forecast from 3.1% to 2.8% for 2018, and from 4.3% to 4.1% for 2019, and we acknowledge the environment of political uncertainty for the short term. However, we continue to be structurally optimistic about the Brazilian equity market. GDP growth expectations are still significant, inflation is low, and real interest rates will remain low (below neutral) as long as there is still GDP output gap (slack) in the economy. In that scenario, corporations should continue to show earnings growth. We expect the Brazilian market to resume its positive performance as soon as risk aversion sentiment dissipates.

The strong correction in the Latin American markets has brought some investment opportunities. We have increased the exposure to Banks in Peru through Credicorp as a probable“safe heaven” in volatile times. In Mexico, we start to see opportunities among companies that benefit from a stronger USD, given poor political outlook. In Chile, the economy has given signs of recovery, but we have struggled with high valuations.

Russia scores with emerging market fund managers and football fans

Russia is popular not just with football fans this month, but emerging market fund managers, who say Russian stocks are the cheapest of any emerging market following sanctions applied this year. Although Russia makes up just 3.5 per cent of the MSCI Emerging Market index, which many funds use as a benchmark, most of the big emerging market funds have a higher share invested in the region.

HERE’S WHAT ELSE YOU SHOULD READ

Trade-war fears are hammering China’s stocks, and the official response is just as ham-fisted as it was back in 2015.